* Company cutting businesses from five to three
* Reviewing commercial shipping for possible sale
* Defense shipping moves to defense, civil nuclear to power systems
* Shares jump 6 percent (Adds CEO, CFO comments, updates shares)
LONDON, Jan 17 (Reuters) - Rolls-Royce is considering the sale of its loss-making commercial marine business in another shake-up by Chief Executive Warren East that will streamline its activities into civil aerospace, defense and power system units.
East had resisted selling the marine business, which has been hit by weak offshore oil and gas markets, saying its technology was relevant to other parts of Rolls.
The business, which is largely based in the Nordics, had "responded admirably" to the downturn by cutting its cost base, he said, but the case for new investment was "challenging."
"It is only right that we consider whether its future may be better served under new ownership," he said.
Shares in the company jumped to a 10-week high after it said the loss-making business could be sold. They were trading up almost 6 percent at 902.6 pence at 1420 GMT, topping the FTSE 100 index.
East said he had previously had to deal with urgent priorities at Rolls-Royce, including introducing new engines and doubling production rates of its engines for wide-body jets, before ordering a review of marine.
"We needed to stabilize the business and deliver on the initial simplification to restore trust," he told reporters.
The marine business generated a loss of 27 million pounds on sales of 1.1 billion pounds in 2016, with the bulk of the business supplying equipment and vessel design across the oil and gas, merchant and other commercial markets.
The loss widened in Rolls-Royce's first half to 17 million pounds, when it said the market outlook remained challenging.
East said the review was consistent with his previous comments that not everything in the unit was core.
"Some of the activities are very useful to us from a future technology point of view," he said, such as automation.
But activities like vessel design could be sold off.
Bankers said GE, Wartsila and Siemens were possible buyers.
Finance Chief Stephen Daintith said there was interest in the business, but it was too early to talk about the value of a deal before the review, which is being done by Lazard, concludes.
" has gone through a lot of restructuring," East said. "It is well placed for a turnaround in its markets, it's just that the visibility around that is uncertain."
East said the naval shipping business would move into an expanded defense unit.
The major overhaul, East's second since he became CEO in 2015, will also see the elimination of its nuclear division, with nuclear submarine systems moving into defense and civil nuclear activities moving into power systems.
East said the changes would enable the company to respond more quickly to the needs of its customers and reduce costs.
"It will create a Defence operation with greater scale in the market, enabling us to offer our customers a more integrated range of products and services," he said.
"It will also strengthen our ability to innovate in core technologies and enable us to take advantage of future opportunities in areas such as electrification and digitalisation."
East, who has already stripped out layers of management at Rolls, said the restructuring would remove some duplication, but it was too early to quantify job losses.
Cost savings, beyond the 200 million pounds a year it targeted in 2015, and other details about the restructuring will be given in its full-year results in February.
(Editing by Kate Holton and Jane Merriman)